Two of the more popular posts HTWW has featured this year were "Poor, Poor Plutocrats," -- my reflections on AIG trader Jake DeSantis' whining in the New York Times over how unfairly the public was treating him -- and "The Man Who (Maybe) Blew Up the Global Economy" -- a post referencing a profile of Joseph Cassano, the boss of AIG's notorious Financial Products division.
Therefore, I'm reasonably confident that readers will waste no time in hurrying over the Vanity Fair, to read Michael Lewis's extended take on all things AIG FP, including extended cameos by both DeSantis and Cassano. Previously available only as a clumsy-to-read PDF file, it is now fully accessible.
As usual, Lewis is excellent, and his story fills in some previously murky holes. But once you wave away the personality issues -- Cassano: Grade A Jerk -- and the complexity of credit derivatives, we are left with a confoundingly basic point. The entire edifice of Wall Street's financial maneuverings was based on the assumption that housing prices would not collapse all over the country at the same time.
Still, Cassano agreed to meet with all the big Wall Street firms and discuss the logic of their deals -- to investigate how a bunch of shaky loans could be transformed into AAA-rated bonds. Together with Park and a few others, Cassano set out on a series of meetings with Morgan Stanley, Goldman Sachs, and the rest -- all of whom argued how unlikely it was for housing prices to fall all at once. "They all said the same thing," says one of the traders present. "They'd go back to historical real-estate prices over 60 years and say they had never fallen all at once." (The lone exception, he said, was Goldman Sachs. Two months after their meeting with the investment bank, one of the A.I.G. F.P. traders bumped into the Goldman guy who had defended the bonds, who said, Between you and me, you're right. These things are going to blow up.) The A.I.G. F.P. executives present were shocked by how little actual thought or analysis seemed to underpin the subprime-mortgage machine: it was simply a bet that U.S. home prices would never fall.
In a complex world, that seems like a pretty simple, stupid mistake.